Comment by aresant | Hacker News Reader

Comment by aresant | Hacker News Reader

The answer is to restructure the debt, every single one of those companies deals with failures and no-pays on a daily basis.

a) Most lawyers, especially extending credit terms in the startup field, will carry over that debt with interest for years. Call and state your case, make it clear it's no-pay right now either way, but you want to fulfill your obligation in the further - say start making payments in 12 months.

b) RackSpace - you owe personally or through corporation? If personal, call them and have the same conversation - speak with a manager and ask for payment terms outside of normal, otherwise you have to default. If corporate consider folding and walking away, corporate protection is there for a reason and even though it's not a stand-up thing to do, Rackspace's world is littered with bankrupt startups.

c) Visa & MC may be your big problem, getting blacklisted from merchant accounts isn't the end of the world but certainly something to avoid. Also nearly impossible to reach a human that can make decisions on terms. For a startup they should have a 20% merchant reserve on your account anyways, how far does that take you?

Bottom line, think 6 - 12 month terms instead of 12 day terms.

No reason at all you can't get there with the right amount of sucking it up and pleading your case.

Thank you.

a) Yes, and I'm dealing with a startup lawyer, at a very well-known Silicon Valley law firm (this is when we had money). He's been very very patient with our lack of being able to pay the retainer.

b) Through the corporation. It's registered under the Inc and has the EIN associated with it. However, it also has my SSN associated as the primary contact.

c) Well, I have a feeling that most of our credit card transactions are fraudulent, being in the space we are in. (For example, someone charged $12k on a card and tried to cash out to PayPal.)

I'll call up Rackspace and give it a shot. Thank you.

The last startup I was involved in, the guy who was running it talked to the lawyers and got them to waive a good chunk of the retainer fees when it sank

That's good to hear. I'd like to pay this lawyer in full for his services (retainer minus un-used retainer balance). I don't like screwing people over, even if they're expecting it to be a percentage of their clients that do that. I don't want to be in that percentage.

That's admirable, but if you can't pay, you can't pay. It's not worth selling organs over.

Let me correct a misconception here, you are not screwing people over, customers having payment issues is a risk of doing business, they all decided just how much debt they let you get in to.

If you had set out to create this situation on purpose that would be screwing people over, now all that there is left to do is to shut down as orderly as you can and to have everybody absorb an appropriate part of the loss.

To take that further. Don't be that percentage by not acting like them. Don't hide or promise things you can't deliver. You go to them. Lay it out and work something out.

Everyone takes risks doing people. Inability to pay is one. Bad people is another. The first is usually rarer and more manageable. The second is not so bad. You can avoid being in the second category.

*Mixergy interviewed a bankrupcy lawyer a while ago. Maybe there's something useful for you in it. One useful thing I remembered: Discounted debt is usually taxable. Be careful you are not caught off guard. http://mixergy.com/russell-demott-interview/

That's what I would expect here as well. Lawers are - if anything - pretty realistic about plucking feathers from frogs, and they'll be happy enough to see something rather than nothing at all. After all, they might be your preferred contact the next time you strike out and perhaps succeed.

Good luck - transparency is the name of the game.

Regarding (b) if your SSN is associated that's one thing - it's still the corporations debt and you can walk.

If you gauranteed it via your SSN that's another story, and it will reflect on your credit.

Well, I have a feeling that most of our credit card transactions are fraudulent, being in the space we are in.

What space are you in? Phone cramming or reg path reoccurring billing or something like that?

Alternatively, get a consumer loan from a bank and pay off your creditors. Pay the bank back over time.

That is a good idea, but my credit sucks so it might not be the best option to go with. Though it would help my credit tremendously, huh?

You need to try it or you'll never know for sure...

Go to a local credit union instead of a big bank. You can probably also use your car or other assets as loan collateral. I'm sorry to hear you're going through this. The best of luck to you.

You do not need to try it. It will not help your credit to take on more debt. It is a very bad idea to take out a personal loan to pay back a company debt. Why everyone on this thread isn't yelling this at you in all-caps is a mystery to me.

You have the tone of trying to keep the house from collapsing until the parents get home.

http://www.prosper.com/ for those that dont know, it's basically peer to peer lending. investors decide how much risk they want to take on, and prosper auto allocates it among people requesting loans. you'll probably get better rate from prosper than a bank.

Prosper is good, but I think the application and bidding process will be pushing the 12 day mark.

I don't think it's a good idea to start to take on personal debt for a limited company, that might open a huge can of worms.

Best to not mix private and business when a company is already going down the tubes.

Except that your personal credit is linked to your business credit. Just because they can't come after you for the money doesn't mean that you'll be able to get a business loan, lease, etc in the future.

He's a minority shareholder.

if his name is on the paperwork, it doesn't matter.

You are basically saying that there is no reason to incorporate, and that simply isn't true.

Your name can be on the paperwork, your company can be in debt, it can even go bankrupt, as long as you did not do something called 'mismanagment' or 'fraud' you should be good. Being a minority shareholder implies that even if you had wanted you could not have stopped it from going the way it did, unless you happen to be a signing officer of the company able to act on his own, but that does not detract from the above.

Puncturing the corporate veil to go after the private assets or credit status of an officer of the company is a very high threshold to meet, in the case of 'peanuts' debts like the one we are talking about here nobody in their right mind is even going to try.

On top of that, he would have to be an officer of the company that has put up a personal guarantee for any of the debt to rub off, if you do that you're silly and I assume that since there is a corporate lawyer involved here and that the company is a Delaware corporation that he's well protected from that angle.

I'm not suggesting that at all. There are many good reasons to incorporate, including the ability to walk away from catastrophic debt. But there are personal consequences to doing so that the corporation can't do anything about.

A real life example: I am involved in the management of a commercial real estate property. We turned down a prospective tenant because the owners' previous business had declared bankruptcy. How did we know about it? A simple credit report.

If you're not seriously involved in the entity, then none of this matters, obviously.

Side note: it's generally the norm for someone to personally guarantee a merchant account for a new business - I wouldn't call that silly.

> We turned down a prospective tenant because the owners' previous business had declared bankruptcy. How did we know about it? A simple credit report.

In the case of a sole proprietorship I can see how that link would be made, but otherwise it is highly unlikely that a shareholder/officer would be affected in this way.

Any new company must boot-strap their credit (and credibility) in some way. Generally this is done by an officer or owner tying their credit with the company's credit. I own majority in a C-Corp and when applying for a merchant account I was asked to backup the company with my credit and SSN as well as sign for the company with its EIN.

Ok, so you voluntarily agreed to do that, and in that case it makes sense.

But you were under no obligation to do that, and you being the majority shareholder is also a key element here.

The OP is not a majority shareholder, as far as I can see has no obligation to go in to this now and it would be a very bad move indeed to get his name on any paperwork where he privately assumes the debt of the corporation just 'because his name is already on the paperwork'.

It would make it easier, not harder to tie this to him in the future.

I think this "minority/majority shareholder" business is probably a misleading red herring. The point is that the company's creditors agreed to do business with a corporation, which is a separate legal entity from the officers of the corporation. Full stop.

If you personally guaranteed any of the company's debts --- and don't ever do that --- the story is obviously different. But if Rackspace invoices your company, you could own 99.9999% of its shares and most probably not owe a dime.

There are situations --- they vary from state to state --- that "pierce the corporate veil". Fraud is one of them, so is negligence, and so (in some crazy states) is payroll. What they tend to have in common is a tort: something an agent of the company explicitly did wrong to cause damages to another party. Signing a contract and not being able to live up to it is almost by definition not the same thing as a tort, which is why law students have separate classes in "torts" and "contract law".

True, but if you're a sole proprietor that makes it a lot easier to go after you.

A majority (but not sole) shareholder has a less hard time and a minority shareholder has nothing to worry about at all.

The difference between "sole proprietor" and "sole shareholder of a corporation" is large; these are two totally different business structures.

>If you personally guaranteed any of the company's debts --- and don't ever do that --- the story is obviously different.

My experience has been that if you are a small, new corp, nobody will give the corp any credit without a personal co-sign.

I don't think it's silly to personally co-sign stuff. I mean, it's not something to be done lightly, sure, but if you need a lease, you need a lease. sometimes you need to take the risk

Yes - assuming any of this debt is a terrible idea. But taking out a personal loan, investing it in the company in some sensible manner, and having the company pay off its debts could be a very smart thing to do considering the small amount of money in this case.

The take away is that a liability shield is not the same as a credit shield. Your credit will follow you, even if your debts do not. Some people care about this. Some don't.

For $17k, I'd surely think about my credit before walking away.

Let me get this straight, because I'm getting confused here, there is '0' proof for or against him being on the hook for his credit, but just for the sake of the argument let's assume that it is his personal credit that is linked to the merchant account (that would be spectacularly stupid, but ok).

You are suggesting that he take out a private loan even though he's already committed his savings to this venture to the tune of $17K in order to protect his credit rating?

Worst case he won't be able to borrow money for a while, and he might not be able to get a mortgage or other financing.

Would you borrow money in order to be able to borrow money later? It makes very little sense to me, to pay back $17K privately (so that's after taxes) means that you'd have to be earning roughly double that just to get rid of this debt, at a regular salary and expenses that comes down to at least two years before you can get rid of that debt, not counting the interest.

How does that make any sense at all, is your credit rating worth 20K and two years of your life to you?

Because I have more HN karma than I need anyhow...

First, no. I'm not suggesting that he do that. I'm suggesting that it's an option on the table.

Different strokes for different folks. My primary income requires that I be able to secure large amounts of non-recourse debt, for example. A guy might have a wife who expects to be able to buy a house in the near future. Some may not care that the lawyer they hired worked 10-12 hours without getting paid. Others will. For some people $17k may take two years to pay back. Others, not so much. Some people just want to make good on their commitments if at all possible.

Not everyone takes the by-the-numbers view of debt (legitimate though it may be). Those who don't will consider you a deadbeat for walking. What's the cost of that? The answer is different for everyone, and counseling someone to consider the aftermath is just plain sensible.

And a serious question: Where can you get a merchant account for a new business that does not require a personal guarantee? I'd love to know.

This is argument is so silly. Stipulate that everything you say is true. The possible outcomes are: the guy goes hugely into debt, or the guy can't open a merchant account on his own. You know what's worse than not being able to open a merchant account? Personal bankruptcy.

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